In the world of opinions, influencers lend their advice – for a price. Should you ever trust the advice of someone paid to give that advice?
Earlier this month, the U.S. Securities and Exchange Commission (SEC) announced charges against Kim Kardashian for touting crypto on social media while failing to disclose that she was being paid. It may have all been part of a crypto pump-and-dump scheme. Kardashian agreed to settle for $1.26 million.
Kardashian is only the latest in a line of celebrities out in public endorsing crypto. Matt Damon has been seen touting crypto exchange crypto.com declaring that “fortune favors the bold,” while his buddy Tom Brady has been promoting a competing exchange, FTX.
Matt Damon’s crypto.com commercials first aired about a year ago, but has fortune favored those bold enough to dive into crypto? No. Since this time last year, Bitcoin, for example, is down more than 64%. There’s a conspiracy going on, and the only people benefiting are the financial companies, celebrities, and social media influencers joining forces to sell people a lifestyle and dream of riches built upon taking undue risks.
The crypto craze is just another hustle thrust upon the investing public by the financial industry, where the only parties benefiting are the players promoting it. It’s just the wolf in another sheep’s clothing. You may recognize more long-running hustles disguised as financial advice, financial planning, or wealth management. Ultimately, the investor takes a ride on volatile investments that don’t pan out where only the promoters make money.
Now that crypto has come crashing down, celebrity and influencer endorsements have come under scrutiny by the investing public and the SEC. The SEC has posted some tips on scrutinizing investment advice from celebrities/social media influencers.
When assessing a celebrity-endorsed investment opportunity, investors should consider the following:
- Is this investment advice a paid promotion? Investors should note that celebrity endorsements may appear unbiased but may be part of a paid promotion.
- Do you have other reasons for this investment? Investment decisions should not be based solely on a promoter or other individual endorsement.
- What are their credentials? Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws.
- Have you done your own research? If you rely on a particular endorsement or recommendation, learn more about the relationship between the promoter and the company and consider whether the recommendation is truly independent or a paid promotion.
The SEC advice can be applied to celebrity-endorsed investments and any investment in general. Be leery of promoters who will make money even if you lose money. That’s why I’ve gravitated towards private investments to build and maintain wealth.
With the right private investments, investors will find that the answers they give to the questions the SEC has suggested to them to ask themselves when weighing investment decisions will lead them to allocate away from public investments to private alternatives that promote their own research and scrutiny.
Let’s revisit these SEC questions in the context of private investment opportunities:
- Is this investment advice actually a paid promotion? A more appropriate question in the context of private investments is, “are the promoters getting paid no matter what?” Be leery of promoter compensation structured to pay the promoters whether investors are paid or not. Many private investments pay investors through a waterfall structure that pays first-dollar profits to the investors, not the promoters.
- Do you have other reasons for this investment? Know your investment objectives. What are they? Passive income? Growth? Both? Knowing your investment objective will facilitate lining up your own goals with those of a private company, fund, or opportunity you’re considering.
- What are their credentials? Private companies are transparent and are free to share their backgrounds, experience, and expertise with investors to make sound judgments about an investment opportunity.
- Have you done your own research? Private companies make it easy for investors to do their research and due diligence by opening themselves and their businesses up to business and financial scrutiny through disclosures on written materials and opening the door to investigate promoter credentials.
The financial industry is a big machine built to soak investor cash, and now it’s joined forces with celebrities and influencers to oil the machine. As with the crypto crash of the past year, the promoters will always get paid even as investors lose money.
Don’t get sucked into the Wall Street and crypto hype machine, and base your investment decisions on the ramblings of talking heads that have no clue what they’re talking about.
You can take back control of your financial future by asking the four simple questions posed by the SEC:
- What do the promoters have to gain from you investing with them?
- Do you have your own investment objectives independent of the promoters?
- What are the promoter credentials?
- Have you done your own research?